Vol-7 Issue-1 2021 IJARIIE-ISSN(O)-2395-4396

SELECTIVE INVENTORY CONTROL

Muskan Agrawal 1, Yash Khandwani 2
12
, Student, B.E., Industrial Engineering, Maharashtra, India
Shri Ramdeobaba College of Engineering and Management, Nagpur, Maharashtra, India

ABSTRACT
This paper is a review on various selective inventory control techniques. The references are taken from various
research papers already published in this domain but on different types of industry or fields. This paper tells
how efficiently selective inventory control technique can be used to optimize the resources and reduce cost. The
inventory control techniques are used in combination of one another. Various combinations are used to solve
varied types of problems.

Keywords: - Inventory management techniques, ABC analysis, VED analysis, FSN analysis, XYZ analysis,
SDE analysis.

INTRODUCTION
Every industry works on certain inventory. Thus it forms an important asset of the industry and thus needs to be
properly managed. Inventory control techniques helps to optimize the inventory by considering various
factors depending upon the type of technique. From industry at small scale to large scale needs proper
maintenance of inventory. Inventory management includes deciding the inventory level, cost involved and the
time at which material should be ordered or stocked. Thus it forms a crucial part of Industrial
processes. Inventory management is a systematic approach to sourcing, storing, and selling inventory—
both raw materials (components) and finished goods (products). In business terms, inventory management
means the right stock, at the right levels, in the right place, at the right time, and at the right cost as well as
price.

METHOLOGY:

Inventory Management Techniques

ABC Analysis:-

ABC analysis stands for Always Better Control Analysis. It is an inventory management technique where
inventory items are classified into three categories namely: A, B, and C. The items in A category of inventory
are closely controlled as it consists of high-priced inventory which may be less in number but are very
expensive.

The items in B category are relatively lesser expensive inventory as compared to A category and the number of
items in B category is moderate so control level is also moderate. The C category consists of a high number of
inventory items which require lesser investments so the control level is minimum.

VED Analysis

VED stands for Vital Essential and Desirable. Organizations mainly use this technique for controlling spare
parts of inventory. Like, a higher level of inventory is required for vital parts that are very costly and essential
for production. Others are essential spare parts, whose absence may slow down the production process, hence it
is necessary to maintain such inventory. Similarly, an organization can maintain a low level of inventory for
desirable parts, which are not often required for production.

It attempts to classify the items used into three broad categories, namely Vital, Essential, and Desirable. The
analysis classifies items on the basis of their criticality for the industry or company.

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 Vital: Vital category items are those items without which the production activities or any other activity
of the company, would come to a halt, or at least be drastically affected.
 Essential: Essential items are those items whose stock – out cost is very high for the company.
 Desirable: Desirable items are those items whose stock-out or shortage causes only a minor disruption
for a short duration in the production schedule.

The cost incurred is very nominal. VED Analysis is very useful to categorize items of spare parts and
components. In fact, in the inventory control of spare parts and components it is advisable, for the
organization to use a combination of ABC and VED Analysis. Such control system would be found to be
more effective and meaningful.

FAST, SLOW & NON-MOVING (FSN) Analysis:-

This method of inventory control is very useful for controlling obsolescence. All the items of inventory are not
used in the same order; some are required frequently, while some are not required at all. So this method
classifies inventory into three categories, fast-moving inventory, slow-moving inventory and non-moving
inventory. The order for new inventory is placed based on the utilization of inventory.

XYZ Analysis

XYZ analysis is one of the basic supply chain techniques, often used to determine the inventory valuation
inside the stores. It's also strategic as it intends to enable the Inventory manager in exercising maximum control
over the highest stocked item, in terms of stock value.

The XYZ analysis is a way to classify inventory items according to variability of their demand.

 X class items which are critically important and require close monitoring and tight control – while this
may account for large value these will typically comprise a small percentage of the overall inventory
count.
 Y class are of lower criticality requiring standard controls and periodic reviews of usage.

Z class require the least controls, are sometimes issues as “free stock” or forward holding.

GOLF Classification:-

The letter stands for Government, Ordinary, Local and Foreign. There are mainly imported items
which are canalized through the State Trading Corporation (STC) Minerals and Metals Trading
Corporation, etc. Indian Drugs and Pharmaceutical Ltd (IDPL), Mica trading corporation etc. These are
special procedures of inventory control which may not applicable to ordinary items as they require special
procedures.

High Medium Low (HML) Classification:-

HML Analysis classifies inventory based on how much a product costs/its unit price. The HML classification
is same procedure as adopted in ABC.

 High Cost (H) – Item with a high unit value.

 Medium Cost (M) – Item with a medium unit value.
 Low Cost (L) – Item with a low unit value.

The core difference is, for HML classification; unit value is the criterion and not the annual consumption value.
The inventories should be place in descending order and it is up to management to fix limits of these three
categories. Example: the management may decide all units of items with unit value of Rs 2,000 and above will
be H items; between Rs. 2000-1000 will be M items & those below Rs. 1000 will be L items.

SOS Classification:-

SOS analysis is based on seasonality of items and it classifies all the items into two categories

S- Seasonal

0S- Off seasonal

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The analysis helps in:

1. Identifying items that are available only during a limited period of the year .For e.g. Raw mangoes are
only available only during a summers

2. Identifying items that are seasonal but available throughout the year however their costs in offseason are
relatively high.

3. Non Seasonal items

As discussed above there are a number of methods used for selective inventory control and each method
highlights a different aspect .The right method should be selected on the purpose for which we wish to
carry out the selective inventory control.

SDE Analysis:-

The criterion for this analysis is the availability of the materials in the market. In industrial situations where
certain materials are scarce (especially in a developing country like India) this analysis is very useful
and gives proper guideline for deciding the inventory policies.

D stands for difficult items, items which are not readily available in local markets and have to be procured
from faraway places, or items for which there are a limited number of suppliers; or items for which quality
suppliers are difficult to get.

E refers to items which are easily available in the local markets

2. REVIEW WORK
We collected and studied 15 research papers to analyze how different inventory control techniques can help
inventory management.

Sr. Paper Title Author(s) Inventory Summary

No. control
technique
used.
1 Inventory control Shibamay Mitra, FSN This case study discusses FSN analysis
using FSN Analysis - M Sukumar analysis. method of inventory control analysis of
A case study on a Reddy, Kumar an Electric Multiple Unit manufacturing
Manufacturing Prince. industry. We have found that the
industry. priorities of the items changes according
to different inventory analysis techniques
therefore the team needs to decide which
one to go for.
2 Management of Spare Sagar V.Mahajan, VED analysis After analysis for maintenance downtime
part & Reduction of Amit K.Chavan, & FSN and spare part management using VED-
Downtime of Prof. M. S. analysis. FSN analysis, the layout of store
Resistive welding Rohokale. department was modified which
machine.
3 Study of Inventory R K Malviya, ABC The objective of this study was to
audit and Control of S. Dharmadhikari, analysis, identify items for inventory management
Automobile Spare S. Choudhary, XYZ analysis using selective control techniques. The
parts using Selective S.Gupta and & FSN integrated ABC, XYZ and FSN analysis
Inventory control. V. Raghuwanshi. analysis. methodology was adopted in isolation as
well as conjunction to determine the
most optimal method for classification of
spare part inventory. Firstly individual
analysis was performed like ABC on all
components but single analysis failed to
achieve proper economic control.

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Therefore to gain more efficient control,

3-dimensional matrix of ABC-XYZ-FSN
was prepared which forms the basis of
inventory control. On the basis this 3-
Dimensional matrix 12 items come in
AXF category which needs strict control
and efforts should be made to reduce the
stock to Z category. Likewise 105 items
are in CZN category. They don’t have
much value but they occupy large space
within their inventory, hence suggestions
were made to free shelf space by
disposing them via selling them at
discount. Most of the non- moving items
have low value so that is the reason they
don’t need much control. 9 items fall in
BYS category. From the above study it
was found that the priorities of the items
change according to different selective
inventory control category.
4 Spare parts Andrea Bacchetti First of all, a comprehensive literature
classification and & Nicola Saccani. review on research about spare parts
demand forecasting categorization, spare parts demand
for stock control: forecasting, and their integration with
Investigating the inventory management approaches was
between research and undertaken. Secondly, they performed
practice. ten case studies in various sectors
(automotive, household appliances,
printing systems, heating and air
conditioning).
5 Prioritized ABC- Manivel P & ABC analysis The constraints and problems faced by
FSN analysis of Rajesh & FSN the hospital inventory management to be
inventory Ranganathan. analysis. overcome by implementing a new
management in inventory model and attain serviceability
private and hospital in an effective and efficient way. The
pharmacy. initial step of achieving the efficient
inventory model, the inventory analysis
to be selected based up on the present
situation. Then formed the priority
based ABC – FSN inventory matrix and
narrowed down the drugs for monitoring
and control strategies of pharmacy drugs.
6 Analysis of Inventory Tom Jose V, EOQ, ABC It is found that, there is a variation in the
Control Techniques; Akhilesh analysis & EOQ & no. of unit purchased. It is
A comparative study. Jayakumar & Sijo FSN analysis understood that the company is not
M T. following EOQ for purchasing the
materials. So, the inventory management
is not satisfactory. From calculation of
safety stock, we can able to determine
how much the company can hold the
inventory in reserve stock per annum.
7 An Inventory control Rohan Nadkarni & ABC analysis The case study discusses ABC analysis
using ABC and FSN Dr. Asita Ghewari. & FSN methods of inventory control analysis of
analysis. analysis. a wheel manufacturing industry. From
the above study we have found that the
priorities of the items changes according
to different inventory analysis
techniques. As compare to ABC analysis,
FSN works with usage rate and ABC
works with annual consumption value.

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As per the importance of materials in

production ABC and FSN are used. FSN
techniques significantly reduces
unnecessary motions while issuing
materials if they are arranged
accordingly.
8 Construction material V. Rathinakumar, ABC A study indicates that the overall
management through K. LalithaPriya, analysis & efficiency of the project has increased by
Inventory Control Prassana Kumar BOQ 35% by implementing proper material
Techniques. I. & C. Ravekumar. analysis. management. For efficient material
management some simple tools are
proposed in this project work. ABC
classification and EOQ analysis are used
to overcome stock out issues and to abate
the total inventory cost. Instead of using
inflated software for inventory
management, the engineers & contractors
may use these simple inventory control
techniques which are equally
advantageous and cost-effective.

9 “XYZ” Inventory Dinesh Kumar XYZ Different Inventory Classification

Classification and Dhoka & analysis. methods may be employed for different
Challenges. Dr. Y.Lokeswara purposes. But we must carefully
Choudary. understand their limitations and
implications before major decisions are
put in place based on these classifications
It would be better if some kind of
automations and procedures with checks
are designed for such Analysis like XYZ
where entire process may be very
tedious. ABC along with XYZ, a 2-
dimensional approach to inventory
classifications can be used more
effectively.
10 Analysis of Inventory Surbhi Mishra, XYZ From the classification of items it was
Management Sourabh Tege & analysis & found that X category items hold the
Performance- A case Vishnu Agrawal. FSN priority from management perspective
Study. analysis. and should be strictly monitored as they
are the only products on which high
investment is incurred. Y class items
holds 20 % contribution to the total
components in terms of investment , and
as they are of lower criticality, they
requires lower standard controls and
periodic reviews of usage. Z class items
contributes to about 65% of the total
components which require the least
controls, sometimes can be neglected.
11 ABC Inventory Hooshang M. ABC Data for a group of 29 coagulation and
management support Beheshti, Dale analysis. hematology reagents were used to
system with a clinical Grgurich & Faye examine inventory ordering policy from
laboratory W. Gilbert. the management perspective grouped by
application. total annual dollar value rather than by
cost per item or quantity demanded.
Total inventory costs are then viewed
concurrently and in coordination with
total transaction costs.
Laboratory managers must balance profit
maximization and cost minimization

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consideration as well as personnel time

placed into the management and control
of inventory, and be flexible to deal with
uncertainties. The ABC classification
allows managers to establish reorder
policies for each class based on the days
of supplies, lead time and safety stock
and not the optimum order quantity for
each item in a given class.
12 Integration of Bernd Scholz- ABC The consideration of consumption
demand forecasts in reiter, Jens Heger analysis & forecasts proves to be beneficial since
ABC-XYZ & XYZ future trends have a greater influence on
analysis: practical Christian analysis. the classification quality than forecasting
investigation at an Meinecke. errors. In contrast to the classic method
industrial company. of making the ABC-XYZ analysis based
on consumption data only, the developed
approach in this paper offers
considerable advantages. These are
quantifiable in respect to an assumed
optimal reference classification, with the
classic approach having a
correspondence of 75 percent and the
developed approach reaching a
correspondence of 92 percent.
13 Analysis of different S.K.Biswas, ABC The retail shop should have tighter
Inventory Control C.L.Karmaker, analysis, control to ‘A’ class items rather than ‘B’
Techniques: A case Ariful Islam, HML and ‘C’ classes items as ‘A’ class items
study in a Retail Nazmul Hossain, analysis & have the highest consumption of BDT
shop. Shamim Ahmed. EOQ value. Safety stock should be maintained
analysis. to reduce the probability of stock-out of
items. EOQ can be an appropriate
technique to lower the overstock and
minimise total inventory cost. The
analysis of different inventory control
techniques in this paper can bring a
promising result in overcoming these
problems. High priced items should be
checked more frequently than low priced
items. Excess supply than the required
order quantity should not be accepted for
high priced and medium priced items.
‘H’ and ‘M’ categories of items should
be purchased by skilled person and
relative importance for handling these
items should be given properly.
14 Multicriteria K.Balaji & Analytical The Analytic Hierarchy Process (AHP)
Inventory ABC V.S.Senthil Kumar. Hierarchy has been utilized, for estimating the
Classification in an Process judgment of the inventory system. By
Automobile Rubber (AHP) & analyzing the various criteria, sub criteria
components ABC and alternatives, the weights are obtained
Manufacturing analysis. for the different types of bins. Based on
Industry. the usage of the bin, the inventory items
are classified as A, B, C items. The multi
criteria inventory ABC classification is
proposed, for an automobile rubber
components manufacturing industry. Due
to improper material allocation and
inefficient inventory handling process,
storing the inventory of the rubber
components in a proper location and in

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the proper bin is the main problem in the

automobile rubber components industry.
The criteria, unit weight of the
component, and shape of the product, are
used along with the other traditional
criteria for the inventory classification.
15 Material Ramandeep HML ABC analysis is not helpful for the
Management using Singh and Analysis materials to less the cost of inventory,
Selective Inventory Harvinder Lal due to some high individual cost items
Control and fall in C or B class of ABC analysis. It do
ARIMA because the consumption of such items is
Methodology in a low; although the items are expensive
Manufacturing they fall in C or B class. By the rule of
Industry ABC analysis, company needs to
purchase in bulk of C class items, if
company did this then high inventory
will be blocked. In order to eliminate
such a situation we need to do HML
analysis to support ABC analysis to find
out expensive items. ABC analysis is not
helpful for the materials to less the cost
of inventory, due to some high individual
cost items fall in C or B class of ABC
analysis. It do because the consumption
of such items is low; although the items
are expensive they fall in C or B class.
By the rule of ABC analysis, company
needs to purchase in bulk of C class
items, if company did this then high
inventory will be blocked. In order to
eliminate such a situation we need to do
HML analysis to support ABC analysis
to find out expensive items.

3. CONCLUSIONS

Inventory management is an important technique for manufacturing organizations. The review of the research
papers indicates that, timely flow of inventory is imperative for the success and the growth of any organization.
Some conclusions are drawn from various case studies are as following:

1. ABC analysis is the kind of technique which provides the means for identifying the items which have
largest impacts on organization’s overall inventory cost. ABC is very simple inventory model and
recommended by many researchers as it is also considering consumption of materials.
2. ABC analysis alone cannot minimize the cost of inventory. HML Analysis in combination with ABC
analysis can prove more efficient for cost optimization and inventory management.
3. For XYZ Analysis, X class of items should be strictly monitored, Y class of items are less critical and Z
class of items are of least concern.
4. FSN-VED Analysis together can optimize the time required for inventory replenishment.

4. REFERENCES

Chitale A. K., Gupta R. C., “Material Management: Text and Cases”, 2013.

Dhoka D. K., Choudary Y. L., "XYZ Inventory Classification & Challenges.",

Asian Social Science, 2015, Vol. 11, No. 4, pp.365.
Mitra S., Reddy M. S. and Kumar P., “Inventory Control Using FSN Analysis
– A Case Study on a Manufacturing Industry.”, 2015.

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Bacchetti A., Saccani N., "Spare parts classification and demand forecasting for stock control: Investigating the
gap between research and practice.", Omega, 2011, Vol. 40, No. 6, pp.722-737.
Surbhi Mishra , Sourabh Tege , Vishnu Agarwal, “Analysis of Inventory Management Performance– A Case
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Brindha G.,” Inventory Management”, International Journal of Innovative Research in Science, Engineering and
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Mishra S., Tege S., Agarwal V., "Analysis of Inventory Management Performance – A Case Study.", 2017.
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